The airline industry’s trade organization, the Air Transport Association of America, is asking Congress to reject President Obama’s plan to levy $3.5 billion a year in new taxes and fees for airlines and passengers, saying it would increase fares or reduce service, resulting in job losses.

Nicholas Calio

The tax increase was part of the $3 trillion deficit reduction plan that Obama introduced last week (see Obama Deficit Plan Includes Tax Code Overhaul). It calls for an increase in the Aviation Passenger Security Fee to more accurately reflect the costs of airline security. The fee has been limited to $2.50 per passenger “emplanement,” with a maximum of $5.00 per one-way trip.

The administration proposed to replace the per-emplanement fee structure with a per one-way trip fee structure, and replace the current statutory fee limit with a statutory fee minimum of $5.00, with annual incremental increases of 50 cents from 2013 to 2017, resulting in a fee of $7.50 in 2017 and thereafter.

While some of the money would go toward airline security, a specified amount would go toward deficit reduction over 10 years. The administration estimated the proposed fee would collect an additional $8.8 billion in additional fee revenue over five years, and $24.9 billion over 10 years. The administration’s proposal would direct $15 billion of that amount to be deposited in the general fund for deficit reduction.
Another proposal from the Obama administration that raised hackles in the airline industry would charge more money to corporate jet owners for use of air traffic services. The administration pointed out that a large commercial aircraft would pay between $1,300 and $2,000 in taxes for a flight from Los Angeles to San Francisco while a corporate jet flying the same route using the same air traffic services from the Federal Aviation Administration would pay just $60 in taxes.

“To reduce the deficit and more equitably share the cost of air traffic services across the aviation user community, the Administration proposes to establish a new mandatory sur¬charge for air traffic services,” said the deficit reduction plan. “This proposal would create a $100 per flight fee, payable to the FAA, by aviation operators who fly in con¬trolled airspace. Military aircraft, public air¬craft, recreational piston aircraft, air ambu¬lances, aircraft operating outside of controlled airspace, and Canada-to-Canada flights would be exempted.”

The revenues from the extra surcharge would go into the Airport and Airway Trust Fund, and generate an estimated $11 billion over 10 years. The administration estimated that the total charges collected from aviation users would finance roughly three-quarters of airport invest¬ments and air traffic control system costs.

However, the airline industry objects to the new fees. “Airlines are the physical Internet, connecting people, products and the world, driving the global economy and creating millions of jobs,” said Air Transport Association president and CEO Nicholas E. Calio in a speech to the International Aviation Club of Washington on Tuesday. “To further burden this already financially challenged industry is both illogical and a job destroyer. The results will be devastating to the U.S. economy. The U.S. government continues to use the airline industry as a cash cow, rather than seeing airlines as a growth enabler and understanding the strategic nature of aviation and what it takes to support one of our country’s most critical industries.”

The ATA noted that federal taxes and fees in the U.S. make up $61, or 20 percent, of the cost of a typical $300 domestic round-trip ticket, which is higher than the taxes paid for alcohol, tobacco or guns. The industry also contends that overall federal aviation tax burden in the U.S. has tripled since 1972.  “We are saddled with tax and regulatory mandates and restrictions that are unheard of for other industries,” Calio said.

Calio compared U.S. government policies unfavorably to other countries that view aviation as a strategic asset and work cooperatively with airlines to ensure successful growth. “Governments in China, Brazil, India and the Middle East understand the competitive necessity and opportunity a vibrant aviation system provides,” he said.

Instead of further taxes, his group urged Congress to focus on setting a National Airline Policy. “We are ready and willing to work collaboratively with the U.S. government on our nation’s priorities for the future, using all the good work that has already been done,” said Calio. “We need an airline policy that will treat our airlines like the global businesses they are, and enable them to operate as such.”

Over the summer, when airline ticket taxes temporarily expired during a disagreement in Congress over a bill to reauthorize funding for the FAA, several major airlines raised ticket prices on their own and charged passengers the extra money without turning it over to the federal government.

Obama has also frequently called for eliminating a tax break for corporate jet owners that allows them to depreciate the aircraft over a five-year period instead of seven years. He has proposed lengthening the depreciation schedule to seven years, the same time period as other commercial aircraft used to carry passengers and freight. The administration estimates this would reduce the deficit by $5 billion over 10 years.